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A weighted average means that the loans with a higher balance influence the interest rate more than loans with a smaller balance – the overall impact of each old loan on the new interest rate is proportional to the comparative balance of that loan.
Because the interest rate is a weighted average and rounded up, borrowers won’t ever save money on interest by opting for a federal consolidation loan unless the loans are pre-2006 and have a variable interest rate.
The new interest rate would still be equal to the current interest rates in that situation, but it might save money in the future if the variable rates rise (the new fixed rate would stay the same).
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Make sure that you check out our guide on How To Consolidate Your Student Loans The Right Way so that you don't fall victim to any scams, pay for services you don't need, or accidentally combine Federal and private student loans.
Student loan debt is a grave concern in modern America.There are two types of consolidation loans: federal and private, and they each come with distinct advantages and drawbacks.Federal consolidation loans can only be used for federal student loans, but private consolidation loans can be used for both federal private student loans.However, private loans can’t be included in a federal consolidation loan.The new Direct Consolidation Loan provides a single fixed interest rate that is equal to the weighted average of all the loans being consolidated, and the interest rate is rounded up to the nearest eighth of a percent (0.123%).How Federal Consolidation Loans Work Borrowers can combine multiple (at least two or more) federal loans into a single Direct Consolidation Loan (this is the only federal consolidation loan available).